This paper investigates how the regulation of bank wealth management products (WMPs) affects corporate innovation. We build a concise model linking firms’ assets allocation decisions to regulatory variables affecting banks. The model suggests that current WMP regulation can enhance formal lending and stimulate innovation among state-owned enterprises (SOEs), while having no impact on innovation in private enterprises (PEs). Empirically, we identify firms’ exposure to bank regulation by examining the number of WMPs issued by banks in 2017 and the distance between banks and firms. Our results indicate that innovation output significantly increased for highly exposed SOEs, while there was no significant change for PEs. Using city-level data, we further observe that regulation fosters innovation in regions with higher exposure. Our findings suggest that regulation exerts heterogeneous effects on the real economy by banks’ credit allocation and firms’ investment strategies

This paper studies the impact of the loan-to-deposit (LTD) ratio regulation – a specific macroprudential policy instrument introduced in Korea – on bank-level lending supply and the subsequent firm-level real consequences. The bank-firm-level matched loan data reveals that small and medium enterprises (SMEs) were particularly hit by adverse lending supply shocks from banks with higher pre-regulation LTD ratios. However, they were compensated by new loans extended by banks with lower pre-regulation LTD ratios as well as unregulated non-bank financial institutions (NBFIs). After all, the regulation did not result in adverse consequences on firm-level net credit or real performance, possibly at the cost of rising corporate loans extended by the shadow banking system

This paper argues that bonus caps can be welfare improving in banking labour markets with high mobility. On the labour market, the largest banks hire the most talented traders, but they need to do so with contracts with high bonuses in order to both screen talent and to prevent poaching by smaller banks. This can lead to excessive risk taking. In some cases, it is socially optimal to prevent screening, leading to a less efficient matching of talent to banks, but also to less risk taking. Bonus caps can achieve this in a way that is both more effective and less costly than setting tighter capital constraints

In a theoretical context where innovators borrow loans or settle for state-owned enterprise (SOE) sponsorship for their projects, we examine the effects of banking prudential regulations and their interaction with corporate leverage on the patenting partnership choice in China using a unique matched patent-firm-bank loan dataset for 15,623 observations in the 2013–17 period. We use a unique instrumental variable (IV) strategy to identify idiosyncratic bank prudential reform shocks associated with the post-2012 Basel III regulation and find prudential metrics (corporate leverage) of the financiers (firms) to positively (negatively) influence SOE patenting partnership choice, though prudential regulation mitigates the latter. Prudential reforms therefore come at a cost of further SOE dominance. However, conditional on an innovation project being SOE sponsored, we find positive spillover effect from the SOE’s employment mandate to loan productivity. Our results are robust across different IV strategies, alternative measures, sub-sample and mechanism analyses

We explore information spillovers and cross-monitoring between the stock and loan markets, focusing on the roles of short sellers and banks. Using Regulation SHO that directly affects short-selling constraints in the stock market but is exogenous to the loan market, we find that only those firms without bank monitors exhibit significant stock price declines upon the announcement of SHO. We also document that while short interest increases following SHO, it increases far less for firms with bank monitors. Using bank and lending relationship characteristics, we find SHO returns increase in the bank's ability and incentive to monitor. Our exploration of equity ownership structure reveals that the presence of block holders and dedicated owners has little to no effect on our results, suggesting that bank monitors complement shareholder monitoring efforts

Since the 2008 financial crisis, regulators and supervisors have been granted increased independence from political bodies. But there is no clear evidence of the benefits of more independence for the stability of the banking sector. In this paper we introduce a new indicator of regulatory and supervisory independence for 98 countries from 1999 to 2019. We combine this index with bank-level data to investigate the relationship between independence and financial stability. We find that greater regulatory and supervisory independence is associated with improved financial stability. We show that these results are robust to alternative measures of financial stability and to a number of tests. Overall, our findings indicate that increasing the independence of regulators and supervisors is beneficial for financial stability

We analyze how changes in capital requirements and policy rate shocks affect international lenders’ decisions to drop out of syndicated loans. Increases in capital requirements in the lender country and decreases in borrower country policy rates imply a greater likelihood that foreign lenders stop supplying capital in international syndicated loans. These results are robust to the inclusion of borrower country, lender country, and loan-round fixed effects. Using lender country capital regulations as instruments, we find evidence of significant economic spillover effects as international lender exits imply smaller loan amounts and shorter maturities. Economic Policy Uncertainty (EPU) and culture variables also help explain lenders’ decisions to exit a syndicate

This article provides first evidence on the capital market effects of the EU Taxonomy Regulation (TR). The TR introduced a new classification scheme to identify companies with environmentally sustainable economic activities. The results offer support for a significant estimated TR alignment premium, compatible with the interpretation that investors already apply the TR and allocate capital to TR-aligned companies. This effect strengthens with an increase in investor attention. We also find significant cross-sectional variation in abnormal stock returns surrounding the publication date of the TR conditional on the degree of estimated TR alignment. Traditional ESG ratings cannot explain the TR premium

Marshalling a large and novel dataset of cell towers and using the purchase of Yu’E Bao as a proxy for Chinese households’ investment in money market funds, this paper investigates how broadband infrastructure affects the welfare of households in wealth management. We find that with the improvement in broadband infrastructure, Internet service becomes more available to households and they tend to convert bank deposits with suppressed rates of interest into money market funds that provide less regulated and hence higher rates of return. Further analyses show that the effect of broadband infrastructure on the conversion of bank deposits into money market funds is more pronounced in counties with lower density of bank branches and among less educated people. Our empirical findings suggest that by alleviating the policy distortions imposed on the traditional banking sector, online financial products and service are powerful tools in the promotion of financial inclusion

A barrage of regulatory requirements has been issued to increase the impartiality of sell-side analysts’ research reports and create a wall between equity research and investment banking departments. Yet studies suggest a persistent organizational culture within the profession that encourages optimistically biased research reports for current and potential investment banking clients. To examine potential solutions to this issue, we focus on sell-side analysts’ target price optimism and find that analysts at brokerages with higher female representation issue significantly less optimistic target prices, especially when they face incentives to inflate forecasts due to their brokerage’s affiliation to the firm being analyzed. To identify the mechanism behind this result, we explore analysts’ optimism bias in situations when mergers between banks change gender composition in a way that is exogenous to the analysts, as well as when analysts voluntarily switch between brokerages with different gender compositions. The results of these analyses, along with a lag and forward test of the relation between the female proportion of analysts and optimism bias, indicate that gender composition plays a significant role in shaping brokerage culture. We rule out that results are driven by the gender of the individual analyst and confirm our results’ robustness to various specifications. Our findings suggest the potential for gender composition of the workforce to aid self-regulation in the financial industry